‘Failure to prevent economic crime’ duty proposed for UK regulators

Baroness Bowles of Berkhamsted, who sits in the House of Lords, tabled a draft amendment to the Economic Crime and Corporate Transparency Bill, currently before the UK parliament, which would empower the secretary of state to introduce new regulations that “confer on any supervisory or regulatory bodies a duty to prevent economic crime and to prevent facilitation of economic crime within their supervisory or regulatory scope”.

Under her proposed new clause, the Secretary of State would gain further powers to set regulations that establish new offences of regulatory failure to prevent economic crime and regulatory failure to prevent the facilitation of economic crime.

The proposed new duties and offences target the UK’s financial services regulators as well as Ofcom and other regulators of communication platforms, including telecommunications. They also target the Financial Reporting Council in respect of auditors; the Solicitors Regulation Authority and other relevant regulators of legal representatives; and the Institute of Chartered Accountants in England and Wales and other relevant regulators of accountants.

The clause also makes provision for “any other regulator” to notify the Secretary of State that they wish to be bound by the proposed new duties too.

Andrew Sackey, an expert in investigating white collar crime, said: “This clause has reached the Committee stage but is yet to be debated. It would impose a positive duty on defined regulatory authorities to prevent the facilitation of economic crime. However, it raises a series of further questions that will require careful thought if the clause is to be added to the Bill.”

“For example, it would need to be determined what activity constitutes prohibited economic crime for the purposes of a strict liability ‘failure to prevent offence’. It would also need to be clarified whether the clause applies extra-territorially, as existing ‘failure to prevent’ offences do in the context of bribery and the facilitation of tax evasion,” he said.

“Other details to work through include whether a corporate needs to have benefited from the misconduct of its associate for liability to attach to it, whether HMRC, a money laundering supervisor, should be classed as a ‘financial services regulator’ or should be left to notify their wish to be bound, and how other authorities not specifically referred to in the clause might be incentivised to opt in to the new duties,” Sackey said.

Another proposed amendment to the Bill, tabled by Baroness Kramer, envisages the establishment of a new Office for Whistleblowers to receive reports of whistleblowing in relation to economic crime.

For the purposes of the clause, ‘whistleblowing’ is defined as “any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime has occurred, is occurring, or is likely to occur”.

The Office for Whistleblowers’ objectives would include to encourage and support whistleblowers to make whistleblowing reports, and to provide an independent, confidential and safe environment for making and receiving whistleblowing information. Its aims would also be to provide information and advice on whistleblowing, and to act on evidence of detriment to the whistleblower according to any guidance the secretary of state sets out in regulations.

According to the proposals, the Office for Whistleblowers would be obliged to protect whistleblowers from detriment resulting from their whistleblowing; ensure that disclosures by whistleblowers are investigated, and; escalate information and evidence of wrongdoing outside of its remit to other authorities. It would further be required to report annual to parliament on the exercise of its duties, objectives and functions.

David Hamilton, a financial crime and regulatory specialist, said: “Numerous regulatory, law enforcement and public bodies are already specified as ‘prescribed persons’ to receive protected disclosures from whistleblowers, with many also operating their own parallel reporting protocols – including the FCA. Some immediate questions that need to be addressed include whether the proposed whistleblowing regime will, or should, require reporters to reasonably believe that any allegations they make are substantially true, and whether there should be a ‘public interest’ qualification. More broadly, where there are multiple authorities already geared up to receive whistleblowing reports relating to economic crime, some may query whether another public office is required.”

Neil McInnes, a criminal defence and corporate crime specialist at Pinsent Masons, said: “There have been several calls over recent years for the creation of an Office of the Whistleblower in the UK. The current proposals focus on the Office having particular responsibilities in relation to economic crime. This has a precedent in the US Securities and Exchange Commission’s Office of the Whistleblower, established to administer the SEC's whistleblower program. In FY2022, that US office received over 12,300 reports, its highest ever number of tips.”

“Were a UK equivalent to be established, although there are no proposals for it to make the types of financial awards to whistleblowers available under the US system, it may nevertheless have a transformative impact on the law enforcement landscape in financial crime cases where these have a nexus to the UK,” he said.